January 07, 2008
Will Biofuels Demand Cause Mass Starvation?

Over at The Oil Drum (one of my favorite blogs btw) Stuart Staniford takes a hard look at biomass energy and argues most of the world's agricultural production might end up going to produce biofuels as billions starve.

Many people are aware that food-based biofuel production has had an influence on food prices. Many people also know that US ethanol production is growing rapidly and now using a noticeable fraction of the total corn supply. However, I'm going to argue that the situation in the near term is potentially more serious than is generally realized.

I will use a mixture of existing data, analysis of biofuel profitability, and simple modeling of biofuel production as an infection or diffusion process affecting the food supply, to demonstrate that there are reasonably plausible scenarios for biofuel production growth to cause mass starvation of the global poor, and that this could happen fairly quickly - quite possibly within five years, and certainly well within the life of the existing policy regimes. It doesn't have to be this way, but unless we start doing things differently soon, the risks are significant.

What, governments around the world are capable of pursuing policies that could lead to this outcome? Yes, pretty much. Though they'll probably back off some once news clips of starvation in assorted locations become frequent enough that people in developed countries start feeling queasy about what is going on. On the other hand, once world oil production starts declining people in the more developed countries might become so focused on their own problems that they just won't care. Ditto for China too.

The article is quite lengthy and I'm only going to excerpt a few smaller pieces of it. If you have an interest in how biomass energy puts food and energy in direct competition with each other then click through and read the whole thing.

Staniford's essay isn't perfect. For example, I don't think that modeling the spread of ethanol production facilities as analogous to disease spread makes sense. But he brings up a lot of useful information about costs and trends in biomass energy production in the United States and the rest of the world. One of his useful observations is that the trend in world biomass facilities construction lags US trends by a few years. This suggests total world demand for grains for biomass energy production will grow substantially in the next few years. Though US demand for grain has pushed up world grain costs and therefore reduced the profitability of biomass energy facilities in the rest of the world. So I question the continuation of this trend.

Let's just pause a moment and figure out how much food we are talking about when we discuss bushels of corn, or gallons of ethanol. A bushel of corn is 56 lb (or 25.4kg) of corn. At about 8000 btu/lb we get 113120 kCal/bushel. Given the average human diet globally contains 2800 kCal/day (see figure below), 1 bushel represents 40 days worth of calories for a person (if that person eat only corn!). Thus at current conversion efficiencies of about 2.8 gal/bushel, the corn in a gallon of ethanol represents a shade over two weeks worth of food (again, all corn). A 15 gallon fuel tank of ethanol is thus 7 months worth of corn calories for one person. Of course, the American corn crop is mainly fed to animals, and after conversion to meat, eggs, or dairy at efficiencies in the range of 1/10 - 1/3, the 15 gallon tank of ethanol is more like 1-2 months worth of food calories for a person.

Note how an increase in demand for meat (as is happening in China and other rapidly developing countries) reduces the amount of grain available for direct human consumption. The grain gets fed to cattle, pigs, chickens and the like. Therefore the poorest humans can't buy it.

Staniford's rough cut calculation has another quadrupling of food prices causing most of the human populace to go hungry.

Here the value for the lower-income 2/3 of the world's population is about +0.7. What this means is that a 10% reduction in income has about the same effect on food consumption as a 10% increase in food prices. This suggests that we can use the global income distribution (shown above) to roughly estimate the impact of a doubling or quadrupling of food prices. We noted earlier that according to the UN about 800 million people are unable to meet minimal dietary energy requirements. That is 12% of the world population. On the income distribution (one graph back), the 12% mark corresponds to $1020/year in income (shown as the lowermost green dot). By looking at the $2040 level (36% of the global population - second green dot up), and the $4080 level (61% of the global population - third green dot up), we can estimate that a doubling in food prices over 2000 levels might bring 30% or so of the global population below the level of minimal dietary energy requirements, and a quadrupling of food prices over 2000 levels might bring 60% or so of the global population into that situation.

These estimates should be regarded as quite uncertain. Still, it seems hard to make a case that food price increases will cause a cessation of biofuel profitability before a significant fraction of the global population is in serious trouble. The poor will not be able to bid up food prices by factors of two and four and keep eating. In contrast, the quadrupling of global oil prices, and tripling of US gasoline prices, over the last five years has had very minimal impact on driving behavior by the middle classes.

The core problem is that gasoline price elasticity in the US is about -0.05, versus the -0.7 price elasticity for food consumption by poor consumers. This makes clear who is going to win the bidding war for food versus biofuels in a free market.

The longer term price elasticity of gasoline demand is a lot higher than the number he references. People don't buy new cars very often and so when their preferences for more efficient vehicles change that change in preferences takes a while to translate into changes in fuel efficiency. Similarly, car companies need years to adjust their product mixes. Also, people do not move very often and so when they decide they ought to live closer to work in order to cut commuting costs again the effects of their decisions do not show up immediately.

Down in the comments Staniford says the price elasticity of meat in developed countries is lower than the price elasticity of grain in poorer countries. This sounds right and has some interesting consequences: As the buying power of Chinese consumers rises a larger fraction of the world's populace demands meat and develops greater price inelastic demand for meat. So the price of grain can go much higher due to demand for livestock feed just as it is going higher due to demand for biomass energy.

Industrialization of part of the world causes starvation in other parts. We can see from the current oil prices and grain prices what to expect from the coming decline in world oil production. Higher oil prices will increase demand for biomass ethanol. That increased demand will raise the price of ethanol in lock step with the price of oil. The higher price of ethanol will cause further bidding up of corn prices to shift grain away from human and animal consumption toward vehicle consumption. Higher prices of oil mean higher prices for corn, wheat, soy, and other grains. It is as simple as that.

Some of the improvements in biomass processing efficiency actually make this problem worse. By reducing the use of non-corn inputs to corn ethanol production these improvements make ethanol production profitable at even higher corn prices. So more corn gets shifted to ethanol production. Yes folks, advances in technologies sometimes make problems worse, not better.

So what should we do about this? I have some suggestions:

  • Develop programs to reduce birth rates in poor countries. Babies not born now are people who won't starve once world oil production starts declining.
  • End subsidies of biomass energy. Hard to do when the recent winners (and most of the losers) of the Iowa caucuses enthusiastically support those subsidies.
  • Develop nuclear, wind, and solar energy. We need to switch to these energy sources and not to biomass energy.
  • Develop great batteries so that cars can run off of electricity.
  • Try harder to protect habitats. The demand for land to grow biomass crops means destruction of rain forests and other habitats. Also, hungry rapidly growing populations in Africa will kill elephants and other critters. Though population growth makes mass extinctions inevitable anyway.

Hey, isn't the future supposed to be Panglossian? Am I letting down my readers by not being sufficiently optimistic?

Share |      Randall Parker, 2008 January 07 11:57 PM  Energy Biomass


Comments
kurt9 said at January 8, 2008 2:45 PM:

I read the article over on Oil Drum. The factor that the writer leaves out is technological advance is going to render this dismal scenario obsolete. If production of hydrocarbon fuels by agriculture does become as popular as he thinks, someone is bound to use their head and come up with a more efficient method of hydrocarbon production using genetically engineered algae, synthetic biology, or some other method that I cannot think of right now that will make agricultural biofuels obsolete. Then, the farmers will return to growing food once again.

So, this is not a problem at all.

odograph said at January 8, 2008 3:45 PM:

Obviously biofuels have the potential to starve people, but I don't see this as a "new" problem. I had heard about aid planes flying into Africa with grain, and their crews noticing cargo jets flying out with seafood for European markets. In that case it was "cheap food in, premium food out." In the future it could be "cheap food in, palm oil out." Of course, as Stuart says, the concept of "cheap food" changes when the energy industry is a buyer.

Should we offset this by planting fewer wine grapes? Should we still grow tobacco? Fresh flowers?

There are all kinds of non-food crops that create this conflict, but certainly energy crop add to the problem.

Bob Badour said at January 8, 2008 4:34 PM:

When the starving starts happening, the enviro-quacks who push for bio-diesel now won't acknowledge their culpability. They won't even blame China's increasing consumption of meat. Nope. We will be evil for eating Big Macs. Mark my words... You'll see!

Bloody, damned environmentalists!

Uiedan said at January 8, 2008 9:10 PM:

The corn, after fermentation, is turned into animal feed with very little loss of food value. Factor this into the calculations and the conclusion is very different.

Randall Parker said at January 8, 2008 9:36 PM:

Uiedan

A small portion of the corn becomes DDG. Staniford understands that. No, there is no different conclusion.

odograph said at January 9, 2008 7:07 AM:

Actually Bob, the environmentalists I hang out with (Gristmill) are more down on biofuels than on meat eating. Vegetarians are vegans are there, but actually a minority.

Of course, you did say "Big Macs" ;-). I'm a happy omnivore but I think McDonald's is pretty bad.

(I was semi-serious when I told my co-workers yesterday that they should go for the chicken Pho rather than the beef Pho for reasons of CO2 efficiency. I did not suggest anyone get the Tofu Pho.)

odograph said at January 9, 2008 7:10 AM:

on DDG you guys heard the e coli connection?

Bob Badour said at January 9, 2008 7:49 AM:

odograph,

But Pho without thinly sliced raw beef and chewy bits of tripe just isn't Pho. It's faux Pho.

(Gotta have lots of fresh basil too.)

odograph said at January 9, 2008 8:33 AM:

I was only somewhat serious because I sometimes go for the beef ones (sirloin/brisket combo) myself. The chicken is (authentic and) surprisingly good though, and I make sure I add my basil and bean sprouts for vitamins.

greg c said at January 9, 2008 12:16 PM:

I think that you are forgetting that higher crop prices will drive more investment and research that will increase yields of agricultural crops. Higher prices will also eventually bring more acres in South American and Africa into production. This will help to offset the problems caused by biofuels. We are already seeing significant increases in yields due to genetically modifed crops in much of Africa and India. Higher prices will only help this.

odograph said at January 9, 2008 1:18 PM:

Actually Greg that is where folk who worry about the planet's "environmental services" start to worry. Huge portions of the planets arable land is in production, and there is some question of whether putting (essentially) all of it into production, without forest reserves to preserve biodiversity.

It's easy to write that off as "environmentalism" but really, I think even "market" folks assume in the back of their mind that there will still be wild forests somewhere ... that there will be "enough" wild forests somewhere.

K said at January 9, 2008 2:06 PM:

"The core problem is that gasoline price elasticity in the US is about -0.05, versus the -0.7 price elasticity for food consumption by poor consumers. This makes clear who is going to win the bidding war for food versus biofuels in a free market."

As Randall noted, that factoid is not very useful for several reasons.

The elasticity of gasoline price is not a constant. It depends upon the price of gasoline itself. The more difficult it is to physically modify behavior the slower elasticity will change over time. Reducing miles driven, buying more efficient vehicles, and driving them more efficiently, building public transportation, will not occur immediately but will occur.

Corn is not being used to make gasoline, it is being used to make ethanol. A rising gasoline price makes ethanol more desirable. One can argue that it is not ethanol production that raises corn price but the rising gasoline price that spurs ethanol production. (The argument can be reversed but much more gasoline is used than ethanol so gasoline price is the dominant factor.) I neglect the huge ethanol subsidies and mandates which are distorting the market.

Vehicle owners are a different population than poor consumers who literally may not be able to afford meals. Moreover, IMO, the elasticity for relatively poor drivers is quite different than that of the richer. So far the rising price of gasoline has had no meaningful effect for most buyers. I would guess that almost all of that -0.05 elasticity comes from the marginally poor and from commerical buyers; they have a strong incentive to cut consumption.

Corn and other grains cannot produce enough ethanol to fuel vehicles. It won't happen. Kurt is right. Alternative sources such as switch grasses and celluosic processes will prevail. But meanwhile corn ethanol production is being driven by political decisions and mandates rather than economic ones.

Rob McMillin said at January 9, 2008 8:33 PM:

To answer your final question, "yes" and "no" both.

It is the horror of the downside that has to keep us focused.

Biofuels will, I think, ultimately be a distraction.

Alex Holt said at January 10, 2008 6:10 AM:

I think there are a lot of useful comments about on the fact that price elasticity changes with the price, and the fact potential biofuel alternatives available on the horizon. My personal opinion is that Stuart from Oil Drum missed a key element in the equation on the transfer to massive shift towards biofuels. The poor (and I mean the world poor not USA poor) do not have the infrastructure to support such a shift. Consider India, or Sub-Sahara Africa. Where are the miles of paved road systems and pipeline systems that is going to bring that ethanol to market. Other poor areas face similar problem. That is going dramatically raise the price of the ethanol.

Additionally many of the poor are barely above subsistence level for farming. They don't generally sell their extra crops on the global market because it is too expensive due to the heavy subsidies that Western governments give their farmers.

Hence I don't think the case Stuart makes is nearly as complete as he thinks.

Randall Parker said at January 10, 2008 6:17 PM:

Alex Holt,

Lots of places in Africa are getting access roads build to bring in oil drilling equipment and to reach forests to cut down the trees. When commodity prices go up big organizers of capital will find ways to put the capital in at places that are now capital poor.

A lot of the poor people in the world do not own the farm land they work on. Some are share croppers. Their landlords will be only too happy to make deals with well capitalized Western farm management companies to modernize their lands to produce biomass energy crops. That'll happen. It probably is already.

Look at the American farmers who have set up operations in Mexico and Brazil. The higher the price of oil and the bigger the Chinese demand for food the more Western farmers will operate all over the world. That'll boost output. But that output is going to be for export.

Though it is possible we won't see many Western farmers in Africa owing to their corrupt governments.

tom b said at January 14, 2008 2:39 PM:

Randall Parker,
Why do you say "A small portion of the corn becomes DDS"?
Two thirds of the weight is left over if it is dried to the same moisture.

odograph said at January 14, 2008 2:46 PM:

Related article at gristmill right now:

"Today's front page New York Times story -- "Europe Takes Africa's Fish, and Boatloads of Migrants Follow" -- chronicles the human cost of overfishing. Fueled by billions in government subsidies, European fleets empty out West African waters, leaving nothing for subsistence fishermen. I wrote about this in an earlier post, but it's an important enough issue to warrant reiteration."

(For those who didn't see the above comment about fish and Africa .. this relates to the way we sometimes take with one hand and give a little back with the other. It's new that it is done with Biofuels, but an old problem overall.)

Randall Parker said at January 14, 2008 7:49 PM:

tom b,

The DDG is less than half the original corn. Here's a reference from North Dakota State U:

4) With less corn available, North Dakota livestock producers must plan on using more dried distillers grains (DDG) in their rations. For every bushel of corn entering an ethanol plant, one-third bushel of DDG is produced.

Here from a page at the National Corn Growers Association we see 18 lbs of DDG from 1 bushel of corn from ethanol plants

Currently, nearly 3.8 million tons of distillers dry grains are created in domestic dry grind ethanol production. For every bushel of corn made into ethanol, 18 pounds of DDGS are created and must maintain value to contribute to plant profitability. The capacity for ethanol production is set to double by 2005 and assuming that dry grind production doubles as well, the potential supply of DDGS is almost 7 million tons.

A bushel of shelled corn is 56 lbs. So 32% of corn used for ethanol is left over as DDG.

Chris said at January 14, 2008 9:28 PM:


Of course, the American corn crop is mainly fed to animals, and after conversion to meat, eggs, or dairy at efficiencies in
the range of 1/10 - 1/3, the 15 gallon tank of ethanol is more like 1-2 months worth of food calories for a person.

Note how an increase in demand for meat (as is happening in China and other rapidly developing countries) reduces the amount of grain available for direct human consumption. The grain gets fed to cattle, pigs, chickens and the like. Therefore the poorest humans can't buy it.

This would be a problem IF the corn was completely destroyed in the distillation process, but it's not. The brewer's grains that result still have most of the feed value for animals as the original corn; all that's removed is some energy. You can get both the meat, eggs, or dairy, as well as the ethanol. True, you need to adjust the way you feed your livestock as well as distribution of feed, but why is this a bad thing?

People associate calories with feed value, but it's a lot more complicated than that. I wonder if the researcher here has ever tried to live on corn alone.

Jonathan said at January 21, 2008 12:24 AM:

I suggest this issue be put to the FAO for comment. After all they are the UN body charged with optimising food outcomes for developing nations!

Jonathan
http://waronstarvation.blogspot.com/

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